Bankers Face Sweeping Curbs on Pay

What a disaster if this goes through. We need another Elliot Spitzer-esque scandal to turn the pitchforks back in the right direction. Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. The Fed’s plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks’ corporate boards and executives. Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees – from chief executives, to traders, to loan officers – to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives. A final proposal is still a few weeks from completion and could be revised along the way, according to people familiar with the matter. It requires a vote by the central bank’s board, but no congressional approval.

It’s worrisome, but I don’t think it will be cataclysmic. This is a proposal to make compensation Fed-regulated, not Senate or Congress-regulated. Unlike our elected representatives, Bernanke understands that unreasonable compensation regulation will hurt the economy. Furthermore, unlike elected politicians, he has little incentive to appeal to the median voter - the type who burns effigies of bankers during recessions. I actually agree that regulation should be increased - some financial institutions were doing idiotic things that should have driven them out of business. Unreasonable risks and bubble-building ultimately hurt all of us. For the purposes of regulation, some educated person just needs to define what constitutes “excessive” risk that should be controlled by law.

This is idiotic. The federal gov’t–THROUGH Fannie Mae, Freddie Mac, HUD/FHA, the Fed, the Treasury, the IRS, etc.–created an environment of extreme risk. And it’s the Fed and Congress that have spent us into mountains of debt and tens of trillions of dollars in unfunded liabilities. Why do people think the gov’t–Congress in particular–has the knowledge, skills, ability, and track record to effectively regulate anything, let alone something as esoteric as “risk” in compensation? You know what’s risky? Giving congressmen cushy jobs that they desperately want to keep, encouraging them to spend our nation into effective bankruptcy at the alter of the constituency.